substantive testing

Re-performance is used when inquiry, observation, and physical examination and inspection have failed to provide the requisite assurance that a control is operating effectively. It’s also the method that is used least frequently in the field. Re-performance requires the auditor to manually execute the control in question, such as re-performing a calculation that is usually automated. The auditor can leverage work done by an internal auditor and documented in work papers, so that only a sample of the work needs to be re-tested to verify. One example of inquiry commonly used is asking the business owner how the company’s financial and data security records are stored. The auditor takes the responses into account—but does not accept the answers alone as confirmation—to establish additional testing criteria since this method is often used in conjunction with other, more reliable methods.

  • This changes based on the risk of material misstatement and the quality of evidence that was found.
  • Recalculation consists of checking the mathematical accuracy of documents or records.
  • If an auditor is having difficulties retrieving clients’ information, using big data can serve as an alternative way to obtain relevant information for the audit or can be used in conjunction with existing evidence as a supplement.
  • Learn how your audit objectives and design strategy affect the evidence required to conduct an audit.
  • If not, there may be material misstatement on the financial statements.
  • Depending on the type and focus of the audit being performed, there are various kinds of evidence that may be available and collected.

Rather than replacing or eliminating traditional audit techniques completely, audit data analytics can be used alongside the traditional methods to optimize the sufficiency and relevance of audit evidence. Audit data analytics allows auditors to look at an entire population rather than just a sample, which can help the audit by providing more assurance to the auditor and provide higher quality audit evidence. Audit data analytics can also provide the auditor with a greater understanding of the evidence, leading to more informed decisions. The audit data analytics process may take some years to become fully functioning. In the first year, the company must find the appropriate data set, and the auditor must perform data wrangling on that data set in order for analytics procedures to be carried out.

Documents Inspection

These audit procedures also enable auditors to independently examine on their own and not just rely on the information that a company has given. This helps ensure that audit results are unbiased and as accurate as possible. Each testing method helps the auditor issue a well-informed opinion, based on evidence. Further, it provides the auditor with the information needed to provide qualified conclusions, whether the business is operating optimally, and managing risks properly. Auditors use one or more of five different test methods, including inquiry, observation, examination, re-performance, and computer-assisted audit techniques , which involves testing large volumes of data using computer algorithms. This audit is conducted by comparing the cash balances with what’s expected to be available. It can also rely on an audit of bank statements or demand drafts, as well as examining whether work was performed correctly and following procedures (i.e do employees know how to handle money?).

PCAOB proposed new standard 2310 modernizes confirmation … – Wolters Kluwer

PCAOB proposed new standard 2310 modernizes confirmation ….

Posted: Thu, 02 Feb 2023 08:00:00 GMT [source]

AS 1215,Audit Documentation,establishes requirements regarding documenting the procedures performed, evidence obtained, and conclusions reached in an audit. Evaluate whether the methods used by the specialist are appropriate under the circumstances, taking into account the requirements of the applicable financial reporting framework.


And in some cases even absence of in is considered as audit evidence. After an auditor has determined the scope of their engagement, it’s time to start testing controls and performing audit procedures.

To collect evidence, auditors have several ways and types of evidence they can collect. Audit procedures are the activities and techniques the auditor uses to collect audit evidence. In order to draw a conclusion on which to base the audit opinion, the auditor performs audit procedures to gather audit evidence in three broad categories. Recalculation and reperformace are procedures used by auditors to obtain information, called audit evidence. Learn the definition of audit evidence, and explore recalculation and reperformance for audit clients and the procedures for non-audit engagements. Audit programs contain our plans for how the auditor will gather the evidence they require. It could include plans to test internal controls for a transaction cycle or substantive tests to gather evidence.

Audit sampling methods for tests of controls

Employ alternative Audit Evidence And Audit Testing when confirmations are not returned or exceptions exist. Expanding the coverage of technical accounting topics and industry-specific requirements in firm-sponsored training courses to ensure audit personnel understand the nuances of GAAP, particularly those involving unique industry issues.

  • Confirmations are third-party assurances received directly by the auditor.
  • Financial information and other relevant non-financial information.
  • This judgement is important because cost of examining and evaluating all available evidence is too high.
  • 1.4.2 In other words, financial statement assertions are management’s explanation about the recognition, measurement, presentation and disclosure of information in the financial statements.
  • As for challenges auditors would face, one would be linking the big data with the relevant, traditional audit evidence in order to complement it.